Book Reviews

Barbara Humphries reviews Naomi Klein's "The Shock Doctrine: the rise of disaster capitalism". This review originally ran in Socialist Appeal issue 159 in the UK. You can order the book online here.

The author's story of the theme "blank is beautiful - three decades of erasing and reinventing the world" begins in New Orleans after floods devastated the city two years ago. She says that hearing all the talk of "fresh starts" and "clean sheets" from Republican congressmen, you could almost forget the toxic stew of rubble, chemical outflows and human remains just a few miles down the highway. Her friend in New Orleans said "I really don't see it as cleaning up the city - what I see is a lot of people got killed uptown. People who shouldn't have died."

"the Shock Doctrine" is about how natural disasters have given capitalists the opportunity to reconstruct cities like New Orleans according to their own whims by turning the area into a theme park and discounting the majority of poor residents. A similar process has been in place following the Asian tsunami of 2004. Fishermen have been forbidden to rebuild their huts close to tourist beaches. Just what the international hotel chains wanted. But it is not just natural disasters which have given the capitalists the opportunity to advance their interests - there are man-made disasters as well - economic crises and wars.

The author traces the impact of the Chicago School of Economics theoreticians and their bid to change the world over the last thirty years. Committed to free market economics, privatisation and the destruction of government regulation of business they have wrought havoc in one country after another. Initially dismissed as beyond the pale by main stream economists who were committed to Keynesian policies both at home and internationally after 1945, economist such as Milton Friedman and Hayek finally found opportunities with the crisis affecting the international economy in the 1970s and later the collapse of the Stalinist regimes in Eastern Europe. The capitalist class and its representatives could not continue in the same way. But the Chicago Boys as they came to be called still had to convince governments that they could introduce their shock therapies and survive. This would be a problem in a democracy. The majority of the population benefited from the policies of top down redistribution of wealth. How would they react to a massive growth in unemployment and public spending cuts, whilst a handful of the rich increased their wealth?

Not surprising the first experiment of the "Chicago boys" was carried out under a dictatorship. In 1973 General Pinochet overthrew the democratically elected socialist government of Salvador Allende in a military coup. Pinochet became the first recruit for this aggressive brand of free market economics but the project did not go smoothly. By 1974 inflation in Chile was 375% - the highest in the world. Friedman went to Chile to urge Pinochet to put this right - by pursuing his policy more vigorously. Public spending was cut by 72% and 500 companies and banks were privatised. The Chilean economy was opened to the world economy and imports flooded in. Unemployment rose to 20% and by 1988 45% of the population lived below the poverty line. The richest 10% saw their incomes rise by 83%. This became the model for the whole of Latin America - implemented under dictatorial regimes which used torture and later under so-called democracies. A strategy which either way is now called "the new colonialism" throughout the continent.

However United States governments themselves were still unprepared to adopt the economic policies of the ‘Chicago Boys'. President Nixon was a great disappointment to them in the 1970s - and Friedman called him "the most socialist of presidents of the US in the 20th century"! Friedrich Hayek however was still trying to convert his friend - Margaret Thatcher. Elected in 1979 she was a fan of free market economics but had failed to make them popular in the UK. In spite of the sale of council houses, a policy designed to win over sections of the working class for the Tory Party, her government only had 18% public approval and she was looking at defeat in the 1983 election. However this time it was not a natural disaster or an economic crisis (other than the one largely seen as having been created by her government!) which allowed her to win the 1983 election - it was the successful conclusion of the Falklands War against Argentina. This prepared public opinion in the UK for a radical shift of economic policy towards monetarism and privatisation. The labour movement was defeated repeatedly in the 1980s both on the industrial and political front.

Another large change to the fortunes of the ‘Chicago Boys' was their capture of international institutions such as the World Bank and International Monetary Fund, both former bastions of Keynesianism. Most countries in the world would at some time be dependent on these organisations for a loan. This could now be made conditional on the acceptance of neo-liberal economic policies. These organisations have been used to wreck the lives of millions world wide in the 1980s and 1990s, as one country after another experienced financial crisis, the situation being most acute in the developing countries, in Africa, Asia and Latin America.

Another group of countries were also to be at the mercy of the policies of the ‘Chicago Boys'. These were the former Stalinist countries, starting with Poland. Solidarity was a trades union, it did not start out by embracing free market economics. On the contrary. It stated that "the socialised enterprise should be the basic organisational unit in the economy. It should be controlled by the workers' councils."

Unfortunately when Solidarity won the elections in Poland with a landslide majority the Polish economy was in collapse. A World Bank loan of one billion dollars was made conditional on the government adopting economic policies advocated by Jeffrey Sachs, then one of the ‘Chicago Boys'. All major industries were sold off, even though in 1992 60% of Poles opposed privatisation. By 1993 unemployment was 25% and 59% of the population were living below the poverty line. A Solidarity activist was quoted as saying "I wouldn't have spent a week, nor a month in jail, let alone eight and a half years for capitalism."

The fall of the Berlin Wall in 1989 was to give capitalism access to 25 new countries. Their experience of capitalism however was not be the post 1945 social democratic regimes of public ownership, welfare states and full employment which had gone hand in hand with democracy in Western Europe. The collapse of the Soviet Union itself meant that world capitalism had lost an enemy and could reign unchecked. Weak in traditions of democracy and labour movement activism the countries of Eastern Europe were ripe pickings for free market economics. But so were countries which remained under the control of the Communist Party. In 1980 Deng Xiaoping invited Milton Friedman to China where the aftermath of the repression that took place after the massacre in Tiananmen Square in 1989 provided an ideal political background for the implementation of his economic policies without opposition. It was not the Stalinists that the ‘Chicago Boys' feared but the democratic movements which opposed them.

Meanwhile in the Soviet Union Gorbachev was championing glasnost and perestroika. The author says that unlike in China which was a dictatorship, Gorbachev realised that the economic policies of the ‘Chicago Boys' would not be acceptable under a new democracy. Right wing economists urged him to play the "same role as Pinochet in Chile"! When he refused they had to look for someone else and they found - Yeltsin, who would be prepared to subject his people to the economic shock doctrine. This was to involve the break up of the Soviet Union, staging of a coup against an elected parliament and the impoverishment of the population. There was wholesale closure of factories and farms. The World Bank itself reported on "the impoverishment of 72 million people in only eight years". Between 1996-2006 the Russian population had fallen by six million - one indication of the impact of free market economics. And all of this was done under the cover of "democracy". The Russian backlash has unleashed policies of nationalism and authoritarianism. Who can be surprised if the policies of the free market and democracy have been seen to be entwined in what Fukuyama called "the end of history". It has been a complete confidence trick.

Nelson Mandela, perhaps the "saint" of the 20th century had said that there could be no freedom without redistribution. The Freedom Charter - the programme of the African National Congress endorsed nationalisation of mines and banks in South Africa. Now, however, over ten years after the ANC election victory in 1994 South Africa is reported as being the most unequal society in the world, with 4 million people living on less than $1 a day. How did this happen? Naomi describes how during the transition process control of the economy was conceded to the Central Bank, together with the World Bank and IMF. This tied the hands of the ANC government, elected with overwhelming support to neo-liberal economic policies and even paying off the debts of those responsible for the apartheid regime. None of this was addressed by the Truth and Reconciliation Committee except to advocate they levy of a 1% corporation tax to compensate the victims of apartheid.

The book concludes with the current situation in Iraq- a very sharp insight into what is going on there. How often have we heard politicians throw up and their hands and say how unfortunate it was that there was no plan for the post-war reconstruction of Iraq. Well this book will give you a different viewpoint. There was a plan all right! The author writes -

"...that was pretty much Washington's game plan for Iraq - shock and terrorise the entire country, deliberately ruin its infrastructure, do nothing whilst its culture and history are ransacked, then make it okay with an unlimited supply of cheap household appliances and imported junk food."

US based multinational companies such as Wall-Mart were earmarked to take over the running of Iraq assisted by US government agencies such as "New Bridges Strategies". This was not taking advantage of a war but waging a war to take advantage - a new model for the Middle East as a region? The US State Department called a conference in Baghdad and invited politicians who had implemented economic shock therapies in Eastern Europe to urge the Iraqis to do the same. Even the IMF and World Bank were sidelined this time. There was no doubt as to who was running the show. Bremer the top US envoy called for the privatisation of 200 Iraqi firms, lowering taxes and opening up the economy to foreign ownership. Government employees were dismissed and their functions handed out to private contractors (mainly US firms). Public amenities such as clean water, health services and crime were not seen as priorities by the US administration. This was seen by many Iraqis as an act of war and inevitably fuelled the resistance. Religious organisations stepped in where the authorities failed and fundamentalism became widespread in a formerly secular country. As the resistance grew more work was handed out to private security companies whose staff have come to outnumber the regular soldiers from the US and UK armed forces. Names like Blackwaters and Haliburton have become familiar. The casualty numbers amongst these have mounted and by May 2007 over 900 contractors had been killed.

The author writes -

‘Iraq's current state of disaster cannot be reduced either to the incompetence and cronyism of the Bush White House or to the sectarian tribalism of Iraqis. It is a very capitalist disaster, a nightmare of unfettered greed unleashed in the wake of war. The fiasco of Iraq is one created by a careful ad faithful application of unrestrained Chicago School ideology.'

Is there an end in sight? Naomi gives cause for optimism in her final chapter outlining the growing resistance to the ideas of the Chicago Boys, particularly in the continent where it was first applied - Latin America.

I would urge everyone to read this book for an overview of the past thirty years of economic and political development worldwide. Thirty years ago these events have been unthinkable, in the world of the early 1970s when socialism seemed to be in the ascendancy and there would be no return to the bad old days of mass unemployment, cuts in welfare provision and rising inequality. The free market right wingers could use crises to justify and implement their once discredited policies. Now they have been discredited again. But as long as capitalism survives so will these policies. The years of the welfare state and full employment in Western Europe were not typical for capitalism. Keynesianism - the regulation of the capitalist economy with some public ownership, welfare spending and full implementation was carried out at least partially in response to the pressures of the labour movement.

Most reviews of "The Shock Doctrine" so far have focussed on the use of natural disasters to change policies in favour of the capitalists. But the book goes much further than this - it shows that it is capitalism itself which is the disaster.

Barbara Humphries reviews Naomi Klein's "The Shock Doctrine". This review originally ran in Socialist Appeal issue 159 in the UK. You can order the book online here.